5 minute read
BUSINESS BEAT
Business Beat Business Beat
Insurance is one of those things that is bought under sufferance until such time as it’s needed – when it becomes a Godsend
BUSINESS INTERRUPTION INSURANCE EXPLAINED
Catastrophes have a habit of occurring at the most inopportune of times. While most organisations do their best to plan for most eventualities, for everything else – flood, fire, or act of God for example – there is insurance. Specifically, business interruption insurance.
WHAT INTERRUPTION INSURANCE DOES
Also known as business continuity insurance or business disruption insurance, business interruption insurance doesn’t pay to replace buildings or contents. Instead, it covers any insured lost income as well as the additional costs of keeping an organisation going during the interruption – even if it’s the result of the action of a public authority. Put simply, business interruption insurance protects against potential financial losses and/ or additional costs that follow on from an unexpected event.
Cover varies according to the policy and so the exact wording must be checked. When buying cover, it helps to understand what underwriters will consider when accepting a proposal and setting premiums.
HOW PREMIUMS ARE CALCULATED
There are three key elements that play a role in the underwriting process.
The first is the indemnity period – the time span that a policy will cover and pay out over. This should be based on how long
with Adam Bernstein www.abfeatures.com
Cloud-based Dealer Management System Phone 020 8541 4131 Web deepbluesystems.com Email sales@deepbluesystems.com
it will take an organisation to recover from an incident and will be based on industry specifics such as staffing needs and the need for specialised plant.
Secondly, there’s the amount of gross profit that is to be insured. This will require a declaration of expected gross profit by the proposer.
Lastly, there are any likely additional costs that will be incurred while the business is closed. This may include advisor fees, hiring alternative equipment or buildings and so on.
No insurance policy will cover every eventuality and so it’s important to understand what is excluded. Policies may exclude communicable diseases – especially in light of Covid, terrorist acts, and where the business is in insolvency proceedings.
Not every insurance is mandated by law and business interruption insurance is an example of this. This further adds responsibility for considering this form of insurance – and checking that adequate cover has been obtained – on directors and trustees. It is therefore important that the organisation examines all likely and unlikely situations and takes appropriate steps to protect business income. Thought will need to be given to those who could be impacted by a catastrophe – customers and employees for example.
It’s important to remember that business interruption insurance won’t cover all types of disruption. Rather, it only protects against the risks specified in the policy.
THERE ARE LIMITS TO WHAT BUSINESS INTERRUPTION INSURANCE COVERS
While cover will vary according to policy and insurer, business interruption insurance provides cover against risks that include extreme weather events such as flooding; cyberattacks; fire; electrical failure or equipment breakdown; denial of access – where customers or staff are unable to enter the premises; loss of customers following on from events within a specified distance – bomb threats or physical damage in the locality for example; utility failure – gas, electricity or water supplies; and the failure of telecommunications and internet service providers.
Of course, there are a multitude of other risks that can be covered too.
Business interruption insurance can be bought from a broker, details of which can be found on the British Insurance Brokers Association website: insurance.biba.org.uk.
IMPLEMENT A BUSINESS CONTINUITY PLAN
In tandem with a business interruption insurance policy organisations would be advised to write a business continuity plan that not only considers the potential risks, but which also puts in place detail behind possible recovery solutions. Every possible scenario – no matter how inconceivable it might be – should be considered and planned for.
Once the organisation and the threats it faces have been analysed it’s likely that some risks will be accepted and ignored while others will be accepted but countered with a mutual arrangement with another organisation. Alternatively, the organisation may attempt to lower risks and possibly become self-sufficient.
Regardless, policies should be written that contain all the necessary emergency contacts for key staff, the utilities, employment agencies and key suppliers. Details of the accountant, solicitor, the tax/VAT office (with references), and insurers should also be included as should neighbouring businesses in case they need to be informed.
Lastly, organisations should consider how they would keep communications running while ensuring that customers are kept informed. And naturally, the plan must be regularly checked and tested.
SUMMARY
Insurance is an intangible that is rarely desired until it’s too late to buy. With the world being what it is, it’s never been more important to ensure that the organisation considers emerging and potential risks to the organisation. RISKS
AND ACCORDING TO INSURER ALLIANZ’S Risk Barometer 2020, fires and natural catastrophes are the major causes of business interruption losses – which can cost as much as 45% more than the corresponding property damage from such incidents. However, more exotic triggers like digital platforms and supply chains, political risks and environmental factors are also becoming more relevant for businesses. In 2020, fire was the cause of 30% of business interruption claims, storm was next with 21%, water damage was behind 12% of claims, machinery breakdown led to 5% and flood 4% of claims.
Interestingly, the biggest fears of those surveyed is quite distinct from the claims made. Cyber incidents worried 55% of respondents, fire and explosion – 46%, natural catastrophes – 43%, machinery breakdown – 30%, supplier failure – 25%, and economic policies and sanctions – 13%.
The report noted that environmental issues are rising up the risk ladder as result of extreme weather. This may mean the need to relocate because of flood risks, the encroachment of residential properties.1
